China Doesn’t Want to Be Second Best
The country has had a relatively mixed relationship with cryptocurrencies in the past. Chinese officials have ultimately banned crypto use through exchanges and initial coin offerings (ICOs). China has also stated that it’s considering a full ban on cryptocurrency mining considering the potential damage it can do to the environment, though this is something China has been discussing for years and it’s never made a move.
The notion could be that China is looking to relieve itself of any potential competition. Legislators have been examining the prospects of creating its own cryptocurrency for the last five years. That means since 2014, it’s been discussing the properties of a national cryptocurrency, but thus far, these plans have failed to produce anything significant, and Libra could change this according to some experts.
At a recent conference, Wang Xin – the research director of China’s central bank – hinted that the development of Libra is beginning to take its toll on regulators… So much so, that they may seek to rush production on a national cryptocurrency during these coming months. He states:
We will keep a close eye on the new global digital currency. We had an early start… but lots of work is needed to consolidate our lead.
The idea of a national or global digital currency somewhat goes against the very notions and goals of most independent forms of crypto. For example, it’s the primary idea of bitcoin, Ethereum and other forms of mainstream crypto to serve as decentralized assets; to put financial power back in the hands of cryptocurrency users and traders.
A national cryptocurrency issued through China’s central bank would allow the nation to record every transaction that occurs. This is not only centralized, but arguably invades the privacy of every citizen.
Chuanwei Zou, a chief economist at Bitmain, explains:
China relies on the mobile payments sector immensely. We have had a long lead time [over Libra] with the success of WeChat and Alipay, but Libra represents a huge threat on mobile payments.
We Can’t Let Them Beat Us!
Martin Chorzempa, a research fellow at the Peterson Institute of International Economics, echoes this sentiment and claims:
If Facebook can attract and turn a good number of its current users of Facebook and WhatsApp into Libra coin holders and users, it could immediately leapfrog all of what China has done in terms of building up users… The problem for China is if Libra is truly successful around the world and it’s banned in China, then China is in a losing position and its companies might be in a disadvantage in the digital economy versus companies that are able to accept Libra. That’s quite a scary prospect.